Sam Bankman-Fried’s strength depended on faith

On Sept. 16 CNBC’s “Squawk Box” aired a segment on Sam Bankman-Fried — the CEO at the time of cryptocurrency exchange FTX — and his recent flurry of acquisitions in the wake of an industry downturn. “They call it the JP Morgan of crypto, right?” the host asked, comparing Bankman-Fried to a financier with so much money that he backed countless failing banks to stabilize the entire financial sector. “The white knight of crypto,” read the text at the bottom of the screen.

Over a shot of Bankman-Fried trotting through a parking lot in the Bahamas, a reporter repeated what I consider Sam Bankman-Fried’s pre-crash litany: He’s a 30-year-old multi-billionaire, drives a Toyota Corolla, lives in the Bahamas with nine roommates and a goldendoodle. He became richer, faster than almost anyone in history after launching his most famous company in 2019. In an interview, he perched on a chair and talked about the moves that drew the Morgan comparison: self-sacrificing investments his firm made in the interest of saving what he called the larger crypto “ecosystem.”

Two months later, the White Knight story was thrown into the office dustbin and set on fire. The Crypto Post CoinDesk reports on documents it shook people’s faith in the Bankman-Fried companies, and soon almost everyone but the goldendoodle—investors, customers, employees—was rushing for the doors. In no time, Bankman-Fried was ousted as CEO and FTX filed for bankruptcy. The The Nov. 11 edition of “Squawk Box” features Anthony Scaramucci, whose SkyBridge Capital sold a 30 percent stake in its fund to Bankman-Fried at the time of those White Knight bailouts. “I don’t want to call it fraud right now because that’s actually a legal term,” he said. But you sensed that he very much wanted to call it fraud, the legal word.

The speed of this change, especially in the financial media, was enough to strike a casual observer. in 2021 Forbes featured Bankman-Fried on its cover for its list of the 400 richest Americans, with a lively profile inside focusing on the young billionaire’s pledges to give away his growing wealth. Flash forward to last fall and the magazine published a video titled “‘The Devil in a Maniac’s Clothing’: How Sam Bankman-Freud Fooled Everyone.”

On YouTube, leading comments on Bankman-Fried coverage before the collapse now tend to be sarcastic hints at this change. (“Kudos to CNBC for recognizing a solid businessman!”) On Twitter, angry FTX customers berated crypto journalists for their supposed failures. But the media was hardly alone in rapidly changing its tone; almost no one told a coherent story before and after the crash. Even among the angriest commentators, few had noticed details like Bankman-Fried’s relative lack of philanthropy compared to all the stories about his grandiose philanthropic plans. Far from isolation, credulity abounded.

All this opacity can hinder our ability to tell accurate stories, allowing for only two speeds: full throttle and roadside car ignition.

Bankman-Fried insisted on remaining the protagonist of this story long after lawyers advised him not to, giving numerous taped interviews and appearing in The Times’s DealBook Summit conference. The saga of its rise and fall grew bigger and bigger, in part because it told a rare crypto story: the kind that could be understood by those not interested in crypto. On the way up, he was a budding philanthropist. On the way down, he was proof to those who wanted him that the crypto business wasn’t much more than a shell game. In mid-December he was arrested in the Bahamas and accused of a wide variety of fraud in the United States, and the hit financial thriller had to go legal.

Theranos, WeWork, countless early dot-coms and financials before 2008: Almost all started as exciting business stories about people and companies that seemed poised to reshape their industries in innovative ways and had the capital, growth or returns to suggest they might be headed for something. These articles continued until the business collapsed amid revelations of fraud, incompetence or blatant recklessness. “Whom the gods would destroy,” Paul Krugman wrote in a 2001 Times column about Enron, “they were the first to put on the cover of Businessweek.”

These kinds of seductively optimistic possibilities—promises like painless blood tests or office space that builds community—naturally attract attention, but they’re also at the heart of deception and fraud. The worst narrative implosions may be less about the bad individuals than how easy it can be to hide follow-up information that might help tell the difference. Public companies based in the United States must regularly open their books to investors, but private ones have no such obligation — especially those based offshore, as FTX was. Private wealth has soared over the past 20 years, as has the number of private companies, prompting an SEC official to warn recently that a fast-growing part of the economy is “going dark.” This can allow dangerous negligence or fraud. John Jay Ray III, the man brought in to clean up after Bankman-Fried — the man charged with the same job in Enron’s bankruptcy — said he had never before seen “such a complete failure of corporate control and such a complete absence of credible financial information. On the one hand, people outside the company may have failed to do their due diligence; on the other hand, it would have been impossible if they had tried.

All this opacity can hinder our ability to tell accurate stories, allowing for only two speeds: full throttle and roadside car ignition. What few people knew about FTX supported, in a very real way, the story the company was telling; people did entrust Bankman-Fried with billions and that really gave him newsworthy power and influence. The money rushed out when the public no longer believed the story. His power depended on belief, an all-or-nothing proposition that media coverage barely covered. Not surprisingly, Bankman-Fried says she opposes filing for bankruptcy, a process that would reveal reams of information in public filings; he rightly believed that if he could somehow regain the trust of the people, everything could go on.

Bankman-Fried now looks less like the protagonist in its own story and more like an empty vessel into which people pour streams of money, hoping to create the crypto dream world they desire. The problem we have to face is that even if the story people told about him was inaccurate, there was undeniably a story to tell – his success and influence were real enough to change the world while they existed. Yet almost no one had access to the necessary information to make this story more accurate or to uncover the basis of this success. So we got a story of praise followed by a heaping plate of gloating. There’s always next time, right?

Source photo: Jeenah Moon/Bloomberg, via Getty Images; Alex Wong/Getty Images

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